Open banking came into force in January 2018 and is set to be one of the biggest shake-ups the UK financial sector has seen in recent years. But what is it and how will it affect everyday people?

The Competition and Markets Authority’s new directive will force the country’s nine biggest banks to share customer data – only with permission – with third parties.

In plain English, this means all UK-regulated banks will have to let you share your financial data – such as your spending habits, regular outgoings, payments, and the companies you use (basically your bank, credit card or savings statements) – with authorised providers.

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The reforms are designed to create more competition within the industry and transform the way people move and use their money.

The idea is to allow new financial organisations and digital service providers to access people’s bank accounts, offering online services and personalised financial products to people.

These could include people offering budgeting apps, or other banks, as long as you give your permission. For example, a company might develop an app people can use to monitor their spending or track their bank account and then highlight a way for that person to save money.

Open banking is heavily regulated by the Financial Conduct Authority (FCA) and is underpinned by legislation which requires third parties to be regulated and hold insurance to ensure people are fully protected.

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Dave explains in an “increasingly complicated” financial world, open banking will make it easier for people to streamline their money management and retain control.

He added: “Open banking puts people back in control of their money. Consumers can obtain a single picture of their financial world, rather than having to pull together multiple accounts and products which are difficult to manage.

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“Apps can automate tracking then switch to market-leading products taking the hassle out of managing and saving money.

“In a world where consumer debt is soaring and savings rates are at rock bottom, open banking has the potential to transform people’s relationship to money by putting the individual in control.”

The biggest issue with open banking is many people still do not know what it is or understand the benefits.

In fact, a survey from consumer group Which? found 92 per cent of respondents hadn’t even heard of the initiative.

Dave added: “The biggest challenge facing open banking is that people do not understand the benefits of the legislation and ultimately believe sharing financial data is a risk that will lead to fraud."

But he said while open banking may be a daunting prospect, there are strong protections in place which already surpass the protocols used for direct debits, and will continue to be strengthened over time.

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He added: "Within open banking, consumers will be asked every three months to opt in to share their data. This means it is more secure than current data protocols.”

Dave’s advice is to view open banking as an opportunity to gain savings, but says it’s important for people to do their research.

There are myriad apps available to help with every aspect of people's finances from savings to expense management.

He added: "Before going ahead with any app or platform, make sure the company behind it is regulated by the FCA.”

"Read up on the initiative and feed back to banks and third-party service providers. This will drive the open banking project to ensure that it follows a human-centred design approach where customers’ real-world financial problems are at the heart of any new products, rather than the historic profit-centred design of 1970s to 2000s banking product push.”